With those comments, Rev. Ed Rowe, pastor at Central United Methodist Church, directed the focus of the May 4 People’s Assembly to Make Banks Pay Detroit for the Destruction They’ve Caused.

Over 250 people heard Moratorium NOW! Coalition to Stop Foreclosures, Evictions and Utility Shutoffs explain the banks’ criminal activity and how Detroit’s emergency manager has the power to prosecute.

“It’s important to understand the history of foreclosures and see how it evolved and escalated,” attorney Virginia Fluker said, addressing the meeting. “Financial institutions were deregulated; no one was watching the shop. Creative loans — subprime mortgages — with excessive rates, adjusted to the maximum, marketed to senior citizens and the poor, were bundled and securitized and sold on Wall Street in portfolios. Now the interest rates are so high they cannot be sustained.”

While Congress and the Obama administration bailed out the banks, they left individual homeowners without help, she said.

Fluker referred people to a case study of unregulated banking compiled from testimony before the Senate banking committee and distributed by Sen. Carl Levin.

Mike Shane from Moratorium NOW! led the audience through a presentation “Make the Banks Pay” that documents what happened to Detroit in the era of unregulated banking

“Our only success is because we take to the streets,” said Fluker, who practices law with Jerry Goldberg, attorney and Moratorim NOW! founder, and has defended numerous clients in court.

First, the foreclosure crisis, rising from predatory mortgage loans, destroyed city neighborhoods and tax base and cut the population by a fourth. Then predatory financial instruments that now cripple city government. It can all be explained by lax federal banking regulations and little oversight, according to the presentation.

Moratorium NOW! organizers also say Gov. Rick Snyder understood that the simple declaration of a financial emergency in Detroit would further cripple the city and ensure the banks got paid.

“Just naming the EM, the debt jumped $600 million,” Goldberg said.

Banks are the only winners in Detroit’s financial crisis, said Goldberg, a fact reinforced in an article by Bloomberg news the week after Snyder called for an emergency manager.

There is help, Shane’s presentation pointed out. According to Public ACT 436, the new emergency manager law, the attorney general and the local prosecuting attorney can prosecute criminal conduct contributing to the city’s receivership status.

A report by Moratorium NOW! reads: “Municipal debt must be canceled because the banks and ratings agencies engaged in misrepresentation or fraud in the sale of the bonds and other debt instruments.”

EM Kevyn Orr “must stop paying the debt” and negotiate down the agreements between the city of Detroit and large financial instutions Deutsche Bank, Goldman Sachs and Citigroup, among others, said Goldberg. To manage the city of Detroit’s finances, a good EM needs to take a tough stance with the banks, he believes.

Detroit’s financial crisis began with the foreclosure crisis. From 2005-07, 62 percent of African Americans got subprime loans compared to 28 percent for whites. In Detroit, from 2004-06, about 75 percent of loans to African Americans were subprime.

Subprime loans are lucrative for banks and almost eight times more profitable than conventional loans. The interest rate on subprime loans is typically three percent higher than conventional loans. Many borrowers were also hooked into variable rate loans that reset at interest rates of almost 16 percent, doubling and often tripling mortgage payments for homeowners.

Since the foreclosure crisis began, it was found African Americans were often steered into these loans by mortgage brokers. In 2009, the NAACP sued Wells Fargo for “institutionalized racism.” The NAACP has also worked on lawsuits against J.P. Morgan Chase and HSBC, among 14 other financial institutions.

Mortgage brokers were also found to have systematically and routinely committed fraud in underwriting the loans.

From 2000-10, Detroit lost 237,500 people, according to Census reports. In comparison, New Orleans lost 140,000 after Hurricane Katrina. State Equalized Value on Detroit real estate declined by 29 percent, cutting tax revenues to the city. Moratorium NOW! organizers say this was the beginning of Detroit’s financial crisis, its “hurricane without water, Hurricane Foreclosure.”

In 1996, Detroit had the lowest foreclosure rate of any major metropolitan area in the U.S.

“The crisis created by Wall Street destroyed communities and triggered massive loss of jobs, erosion of the property tax base, the reduction in services provided by cities and states, and many other problems,” reads a report by organizers.

Detroiters have been victimized by financial institutions, say organizers.

In an attempt to stabilize debt payments in the mid-2000s, the city entered into interest rate swaps and other derivatives to make payments to the bank. While the Federal Reserve lowered interest rates for Wall Street to near zero, the city of Detroit continues to pay six percent or more. Organizers say this is the second “tax-payer subsidized windfall for the banks.”

“The City has been put through a series of complex and convoluted financial transactions,” according to the group’s report, which includes interest rate swaps, pension obligation certificates, default and termination agreements, hedging derivatives and “onerous penalties.”

As a result, Moratorium NOW! says the city of Detroit’s total debt is about $9.4 billion. Detroit is not alone in struggling to pay the banks. Interest rate swaps are affecting municipalities, states and other public entities nationwide. The City of Chicago, dealing with a deficit of $520 million in 2010, is paying $66.9 million in annual swap payments. Philadelphia, with a deficit of $2.4 billion in 2010, is paying $94 million in annual swap payments.

The People’s Hearing is set for May 20, 4-6 p.m. at the UAW Local 600 Hall, 10550 Dix Ave. at Wyoming in Dearborn. The Hearing will give anyone affected by foreclosure an opportunity to tell their story for the record.

Information provided at the May 4 assembly came from 3,000 documents outlining contracts and agreements the city has with financial institutions that were received after Moratorium NOW! filed a FOIA lawsuit.

ISDA Master Agreement

The ISDA master agreement is the most commonly used master contract for OTC derivative transactions internationally. It is used to govern many of the financial transactions between the City of Detroit and Wall Street. Below are links to the agreement and sites with explanations.